Volume Investors Placed in Receivership by CFTC

NEW YORK — A trading firm that did most of its business among professionals on the New York Commodity Exchange was placed in receivership Thursday after federal officials said they found a shortage of more than $20 million in customer accounts.

The ultimate size of the losses in the collapse of Volume Investors Corp. remains unclear and will depend largely on the direction of gold prices, sources close to the case said.

The Commodity Futures Trading Commission, the federal agency that oversees trading on the nation's commodity exchanges, obtained the order closing Volume Investors at 8 a.m. Thursday.

Officials at the CFTC and at the Comex said Volume's problems apparently grew out of the misfortunes of three traders who lost heavily when the price of gold soared early this week.

Gerald Westheimer, his wife, Valerie, and another trader, James Paruch, were suspended from their seats on the Comex on Wednesday night for taking "imprudent" positions in gold options, officials said.

In a suit filed in U.S. District Court here, the newly appointed receiver, Frank Wohl, demanded that the three traders repay "at least $14 million" that they allegedly owed Volume.

According to the court papers and to sources who declined to be identified, the three traders had bet that the price of gold, which had been on a downward trend for months, would continue falling.

They sold calls--options that gave the buyers the right to purchase gold at a specific price at some time in the future--without owning the gold on which those options were written.

But when the price of gold soared by $35 an ounce Tuesday, the three traders were unable to meet Volume's demand for more margin, or cash, to support their positions in these so-called naked calls. Volume was then unable to meet a margin call by the Comex Clearing Assn.

The CFTC said in its court papers that Volume was in violation of the "minimum financial requirements" for a commodities firm and that its customer accounts--depleted by the three traders' failure to meet their margin requirements--were at least $20 million short as of Tuesday night.